Why Homo Economicus Might Actually Be an Idiot

Aug. 5 (Bloomberg) -- Imagine yourself betting on the long-term survival of two types of people. One is the classic egoist,
focused and ruthless. The other is more selfless, willing to
help fellow humans without any evident gain. Who will be more
successful?

For anyone steeped in the prevailing thinking of our era,
the obvious winner is the egoist. Darwinian evolution and the
lore of modern capitalism tell us that only fierce competitors
survive. Altruists, the game theorists teach us, are
mathematically incapable of achieving dominance. Acts of
cooperation are either errors born of ignorance or purely
selfish strategic moves aimed at getting something of greater
value.

The idea that biological competition favors the greedy,
creating the ultrarational and incentive-driven Homo economicus,
remains at the core of the models economists use to understand
the world. It is taught to millions of students and informs the
decisions of the planet’s most powerful policy makers.

Problem is, the “hard-headed,” supposedly scientific take
on human behavior bears little relation to reality. An
overwhelming body of research demonstrates that helping
behaviors (or, as economists like to say, “other-regarding
preferences”) are the norm in human interactions around the
globe. This raises the question: If it really does pay to be
greedy, why do humans act differently?

So far, there’s no definitive answer. But there is some
evidence that rational self-interest isn’t always the best
strategy. In conditions of harsh competition, Homo economicus
might not prevail.

Prisoner’s Dilemma

In a recent study, several scientists at the Swiss Federal
Institute of Technology in Zurich examined a classic situation
in game theory known as the prisoner’s dilemma. It involves two
participants in the same crime who are being interrogated
separately. They stand to receive the least combined prison time
if neither confesses, but each can go free by ratting out the
other. Rational incentives and strict self-interest lead both to
confess, earning them the maximum possible combined prison time.
They can beat the game only if other factors, such as genetic
relation or repeated interactions, make it possible for them to
cooperate.

The prisoner’s dilemma is a proxy for many situations in
which self-interested behavior has broadly negative
consequences. As such, it’s useful in studying the processes
driving such phenomena as pollution, global warming, overfishing
and tax evasion.

The Swiss team ran simulations in which hundreds of people
(semi-intelligent computer agents) met in pairs to play the
game. Some of the players acted in pure self-interest, while
others had the potential to care about their counterparts’
payoffs. The helping trait could spread in the population, with
parents passing it on to their offspring, only if it actually
helped people gain resources and reproduce. Homo economicus had
an apparent advantage, never spending any resources on others,
whereas the “nice” species commonly wasted resources to benefit
others.

The surprising result: In many simulations, the nice
species ended up doing better than Homo economicus. How? The
cooperative types tended to cluster and interact with one
another preferentially, thereby benefiting from each other’s
selfless behavior. The researchers called the winning species
Homo socialis -- quite rightly, as it isn’t blind to the
potential of social interactions to enhance well-being.

Greed’s Drawbacks

The findings could have important implications for policy
makers. They suggest that institutions -- that is, the details
that define how people interact -- have a big influence. The
cooperative Homo socialis emerges only in the right
institutional environment and can easily be exterminated by the
wrong one. Institutions built on self-interest, such as
corporate-governance rules that require executives to place the
interests of shareholders over those of society, may perversely
prevent more cooperation from emerging only because they take an
outdated view of human behavior.

The take-home point is that Homo economicus is an
oversimplified caricature who, in many situations, fails to
benefit from real possibilities. Greed isn’t good, as Gordon
Gekko famously said in the film “Wall Street.” In many cases,
it’s not even very smart.

(Mark Buchanan, a theoretical physicist and the author of
“Forecast: What Physics, Meteorology and the Natural Sciences
Can Teach Us About Economics,” is a Bloomberg View columnist.)